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Economics of Energy & Environmental Policy
Volume 12, Number 1



Energy Network Innovation for Green Transition: Economic Issues and Regulatory Options

Tooraj Jamasb, Manuel Llorca, Leonardo Meeus, and Tim Schittekatte

DOI: 10.5547/2160-5890.12.1.tjam
View Abstract

Abstract:
In this age of multiple economic challenges and stimulus packages, is it a good time to heavily invest in tomorrow's energy networks and research infrastructure? The academic literature widely acknowledges that innovation is key to decarbonising the energy sector and fostering sustainable development. However, R&D and innovation have not been strongly promoted following the liberalisation of the energy sector. Is this a case of business, regulatory, or policy failure, or are there other factors involved? In this paper, we suggest reasons for the slow uptake of new technologies in energy networks and discuss some remedies for the European context, where innovation in the area of energy networks is crucial for the implementation of the Green Transition. The solutions to address this shortfall need to be considered in an overarching manner. The specific points raised are with reference to incentive regulation, the establishment of competitive funding models like Ofgem's Low Carbon Network Fund, and a large European collaborative research hub.




Differential Impact of COVID-19 on the Energy Consumption of Residential and Business Sectors

Pedro I. Hancevic and Hector H. Sandoval

DOI: 10.5547/2160-5890.12.1.phan
View Abstract

Abstract:
As a consequence of the COVID-19 pandemic, some patterns of energy consumption changed in the residential and non-residential sectors. This paper uses data from a local utility company in Florida to quantify the heterogeneous impacts of the pandemic on electricity and natural gas consumption across households from different income levels and across essential and non-essential businesses. We found significant increases in the average residential electricity consumption during the lockdown and subsequent reopening phases, which translate into higher cost for households. We found that natural gas consumption dropped abruptly in the business sector and also important differences between the electricity consumption of essential and non-essential businesses, with the former consuming more and the latter less electricity.




Who Knows What: Information Barriers to Efficient DER Roll-out in the U.S.

Sylwia Bialek, Yury Dvorkin, Jip Kim, and Burçin Ünel

DOI: 10.5547/2160-5890.12.1.sbia
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Abstract:
Distributed Energy Resources (DERs) are increasingly popular. Their relevance to the functioning of energy systems and emissions reduction has spurred a flurry of policy discussions and research into the measures needed to facilitate integration of these resources. However, the majority of that work focuses on systems characterized by complete and perfect information, while in reality, there are multiple information barriers to efficient DER roll-out. In this paper, we study the prevalence and relevance of information issues arising in DER deployment in the U.S. We do that by analyzing DER-related regulatory proceedings, surveying the relevant electricity sector stakeholders, and reviewing the existing engineering and economic literature on distributed resources. Within the range of identified issues, most of which relate to utilities, we analyze four issues in greater detail: consumer information, interconnection information, the value of non-wire alternatives, and DER remuneration. We then outline some of the policies necessary to ensure efficient DER roll-out.




Cheap Money, Geopolitics and Supernormal Backwardation of the WTI Forward Curve

Mahmoud A. El-Gamal, Amy M. Jaffe, and Kenneth B. Medlock III

DOI: 10.5547/2160-5890.12.1.melg
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Abstract:
Financial speculators frequently trade in the most liquid short-tenor contracts. We study repeating patterns of sharply steepening slopes in the WTI forward curve to investigate whether, after controlling for macroeconomic variables, physical market fundamentals, and basic arbitrage, calendar spread behavior is partly explained by speculation related to assessed geopolitical risk. We estimate WTI forward curve backwardation using the slope component from the parsimonious Dynamic Nelson-Siegel factor model, and then regress the resulting time series on a variety of economic, financial, and geopolitical variables. Results show that geopolitical risk in juxtaposition with low interest rates explains a significant percentage of the slope variation from 2011 to 2021. We then investigate whether there is evidence to support the common narrative that speculators buy the geopolitical threat and sell the event. We find confirmation of the hypothesis. We further study the dynamic effects of interest rate and geopolitical risk on speculative activity using a Factor-Augmented Vector Autoregression analysis. Impulse response functions from the latter indicate that independent shocks related to geopolitical threat result in heightened supernormal backwardation for a month or more. We recommend changing margin requirements in WTI futures markets in light of these findings to disincentivize this speculative behavior.





 

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